On Friday (tomorrow), China’s National People’s Congress Standing Committee (NPCSC) will conclude its bimonthly meeting with a closely watched announcement on debt issuance plans. If a similar meeting last October is a guide, the announcement will likely come in the evening Beijing time (morning in the US), perhaps but not necessarily first revealed on the evening news (7pm Beijing time, 6am ET). The NPCSC announcement itself will likely be general, with the Ministry of Finance or State Council providing more details in a release that quickly follows the initial announcement.
The NPCSC’s fiscal package will contain several different parts, only some of which should be considered stimulus. We expect:
- CNY 1-2 trillion in central government special bond issuance for near-term stimulus spending. This may be announced as part of a multi-year package, such as CNY 6 trillion over 3 years
- CNY ~4 trillion in local government debt refinancing (not stimulus)
- CNY 1 trillion for recapitalization of the largest state-owned banks (also not stimulus)
Especially if there is a multi-year package, the headline numbers from the NPCSC could easily be CNY 10+ trillion. But if it roughly matches the breakdown above, the actual amount of stimulus will be modest. Please see details further below.
Fresh stimulus unlikely to surprise to the upside – especially relative to Trump tariff risks
Our basecase is that the NPCSC will announce CNY 1 trillion for stimulus spending over the next several quarters, most of which would be for investment. This would be at least mildly disappointing for markets. It is consistent with our expectations for 2025 fiscal stimulus (link HERE), which include CNY 1 trillion in special bonds to be announced Friday and another CNY 1 trillion to be announced at the March NPC meeting. As detailed in our note, we expect fiscal stimulus in 2025 to result in nominal GDP growth of around 4%, roughly even with this year.
There are two ways the NPCSC could surprise on the upside with stimulus tomorrow:
- The amount for near-term stimulus spending could be higher, such as CNY 2 trillion. This would imply a larger size of the overall full-year fiscal package to be announced in March 2025, perhaps CNY 3 trillion in total special bond issuance for the year rather than CNY 2 trillion in our basecase.
- Beijing could announce a multi-year package, such as CNY 6 trillion over 3 years as has been reported by Caixin and Bloomberg. This would not represent a “bazooka,” but would still be a positive signal by providing a floor for stimulus in the coming years – with room for additional upside in the future.
A market rumor overnight speculated on a CNY 12 trillion (presumably multi-year) package consisting of CNY 2 trillion to support consumption, CNY 4 trillion to support real estate, and CNY 6 trillion for local government refinancing.
We are skeptical. Recent policy signals indicate that broad-based consumption support is not a high priority for Beijing. Childcare-related support measures are more likely, but these policies are likely to be announced around the annual NPC meeting in March. We also have limited expectations for near-term property announcements. This is because we expect Beijing to continue to roll out stimulus incrementally. Beijing has recently announced a doubling of “whitelist” property lending to CNY 4 trillion, and we expect any new property measures will only be announced if/when current measures prove inadequate.
Reducing risks, not boosting growth, is Beijing’s current priority
The broader point is that since Beijing’s pivot in late September, the signaling has implied an emphasis on managing financial risks rather than aggressively boosting growth. Beijing may indeed need to step up its support for growth to respond to new tariffs from Trump, but that decision will come at the March 2025 NPC meeting, after the leadership has had more time to engage Trump and assess the risks.
In the meantime, Beijing has already signaled that the NPCSC will move forward with two measures that are focused on reducing stability risks, with only indirect growth benefits:
- Local government debt swap: The NPCSC has confirmed that it will announce a local government debt swap during this session. A local government debt swap converts off-balance sheet borrowing by local governments from banks into official local government bonds – in practice, shifting risk from the financial system to local governments. Such a process will help to reduce financial vulnerabilities and mitigate the risk of a systemic local government debt crisis. However, it is unlikely to lead to a significant increase in local government expenditure. As local government tax and land sale revenues continue to face headwinds in the coming quarters, the only way to finance an increase in expenditure is through borrowing. But there is little indication that current constraints on local government borrowing will be relaxed anytime soon. It also appears contradictory to allow local governments to significantly increase borrowing while simultaneously attempting to address existing debt risks.
- Bank recapitalization. State media reports reveal that bank recapitalization efforts are also making headway. Thus, there is reason to expect that a portion of the forthcoming special central government bond issuance will be used for bank recapitalization. While bank recapitalization will make state banks more resilient, it is unlikely to lead to a significant jump in credit growth. Bank recapitalization will enable banks to lend more at lower rates, but weak credit demand, not insufficient capital, is the more significant constraint on credit growth.
